The state pension will increase by at least 2.5 percent next year, but it is expected to rise by even more. Retirees’ weekly income will go up by whatever the rate of inflation is, providing it is more than 2.5 percent as most analysts have suggested.
The latest inflation figure will be announced on October 20, and will confirm how much the basic and flat-rate state pensions will rise by in 2022/23, with some predicting it could be as much as four percent.
Recent inflation data showed prices in the UK had gone up 3.2 percent for the year to August 2021, but the Bank of England believes that that this could increase even more, up to as high as four percent for the 12 months to September 2021.
Pensioners will see their state pension for the 2022/23 tax year boosted by either 2.5 or the rate of inflation, whichever is higher, due to the terms of the triple lock policy which has been in place for a decade. However, retirees will not receive as much of an increase as they were hoping for.
The state pension triple lock is a Government guarantee which ensures the state pension increases by the highest of average earnings growth, inflation or 2.5 percent every year, allowing pensioners to retain their spending power as the cost of living rises.
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However, a post-lockdown spike in average earnings in 2021 saw the Government temporarily suspend the earnings element for next year. As a result, the state pension will instead rise by the highest of average inflation or 2.5 percent, as a ‘double lock’ is essentially used.
Average earnings surged by 8.3 percent in the three months to July 2021. This would have meant an increase of more than double what is now expected and increased the basic state pension to £149 per week and the flat-rate state pension to £194.50 per week
This will mark the first time in a decade the state pension hasn’t increased in line with the triple lock, which over the years has had a sizeable impact on the income retirees receive, earning them up to an extra £35 per week since its introduction.
An increase of four percent to the state pension may still be welcome news however, as it would represent the largest increase to the value of state pension since the triple lock became policy. Recipients of the full basic state pension would get an additional £5.50 per week, or £286 for the year.
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Those receiving the new full state pension would see their income go from £179.60 each week to £186.78, an extra £7.18 of income which over the course of a year would mean pensioners picking up £373.36 more.
Since the triple lock was introduced, the basic state pension has increased in value by 35 percent, from £102.15 per week in 2011/12 to £137.60 per week in 2021/22, and the flat-rate state pension, first introduced in April 2016, has increased in value by 15 percent, from £155.65 per week in 2016/17 to £179.60 per week in 2021/22.
On the impact of the triple lock, Tom Selby, head of retirement policy at AJ Bell, said: “Since its introduction in 2011/12 the state pension triple-lock has dramatically boosted retirement incomes for millions of people.
“However, in 2022/23 the state pension will rise in line with the highest of inflation or 2.5 percent only, with CPI for September historically the figure used. This will therefore confirm just how much the Government’s decision to axe the earnings element of the policy will cost retirees.
Mr Selby laid out the substantial cost that increasing the state pension by more than eight percent would have had to the Government.
He said: “According to the Office for Budget Responsibility, every one percentage point rise in the state pension costs the Treasury around £900million. This implies an 8.3 percent increase would have cost over £7billion compared to freezing the state pension and over £5billion versus a 2.5 percent rise.”
By failing to fulfil the triple lock in its traditional form next year, the Government will break a pledge from their 2019 manifesto, in which they promised to honour the triple lock going forward. They have reassured pensioners that this will only be a temporary measure.
Mr Selby said: “Despite being a central part of the Conservative Party manifesto, the triple-lock was viewed as too expensive a pledge to maintain – although it is due to be reinstated after next year.”